A leading firm that advises institutional investors in proxy battles says the proposed sale of Icos to Eli Lilly raises a "panoply of juicy contentious issues" for Icos shareholders to consider, including the last-minute, multimillion-dollar sweeteners for Icos executives, which it called "overkill."

HealthCor, a New York hedge fund with a 5 percent stake in Icos, says the biopharmaceutical company is being sold too cheap at $32 a share and is worth at least $40.

Icos, a Bothell-based company that created the impotence drug Cialis, has said the drug is on track for more than $1 billion in worldwide sales next year. On Oct. 17, it agreed to be sold to longtime partner Eli Lilly for $2.1 billion.

"Rarely does a single transaction present such a comprehensive array of important issues," Institutional Shareholder Services (ISS) wrote.

Its report points to the relatively thin 18 percent premium paid by Eli Lilly over the prior day's closing stock price for Icos, and Lilly's insistence that Icos not seek a competitive bid. It also notes that two days after the deal was struck, the joint venture that markets Cialis saw its third-quarter profit quadruple.

The firm said the purpose of management payouts for retention and closing the deal is to "help ensure that management does not stand in the way of a beneficial transaction." But if the payouts are excessive, it said they can also "influence management to push for a deal" that isn't in shareholders' best interest.

Chris Young, director and head of mergers and acquisitions at Institutional Shareholder Services, said in an interview that the Icos board already had standard provisions in place for executive retention in a takeover situation. It was "overkill," he said, to approve, the day before the deal was announced, a package of retention payments and closing bonuses worth $13.6 million to top managers.

The last-minute awards boosted the management group's total compensation upon closing the deal to $68 million, from $55 million.

"You have to question why the company felt the need to sweeten what was already a standard change-in-control agreement for its management," Young said.

Young said his firm will continue to study the deal, and make a recommendation on how to vote.

A vote has not been scheduled, but Icos says it hopes to be done by year-end.

If HealthCor and other dissident shareholders prevail, it will be through an uphill battle. Three of the top six shareholders in Icos, with a combined 28 percent of the company's shares, have much greater investments in Lilly.

Wellington Management, the largest Icos shareholder with a stake worth $260 million, also has a stake in Eli Lilly worth $3.8 billion — about 15 times as much. Capital Research and Management, and PrimeCap Management likewise have stakes in Lilly that dwarf their holdings in Icos.

"If you are Wellington or Capital Research, and hold a large position in Lilly, it may be unlikely that you would oppose this merger, since you stand to gain both from your Icos position, and from the good deal Lilly has gotten," said Charles Hill, a University of Washington business professor and former Icos shareholder.

Beth Young, a senior research associate at The Corporate Library, a corporate-governance analysis firm in Portland, Maine, said it downgraded Icos for its corporate governance a year ago, from a "B" to a "C." The firm cited excessive grants of stock options to Icos Chief Executive Paul Clark, who got 22 percent of all employee options one year, and excessive total compensation for management.

She said Clark's last-minute payouts before the sale look questionable. She added that "it looks bad" that the Icos director with greatest influence over Clark's payouts — compensation committee chairman Vaughn Bryson — is a former chief executive of Eli Lilly.

"It really looks bad anytime you have a last-minute sweetener for management," she said. "It raises the question of whether management left money on the table for shareholders in order to get something for themselves."